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Acquiring Rail Corridors:
Chapter 7: Financing Your Aquisition
In these times of shrinking public budgets, rail-trail acquisitions are not always easy to fund. Whether you anticipate spending a few thousand dollars, or several million dollars, you must have a concrete plan for funding your acquisition before you begin to negotiate with the railroad. If finding funds seems difficult, don't be afraid to involve your stakeholders and citizen supporters in the quest to unlock seemingly unavailable funding sources or to develop creative financing options of your own. While this chapter explains various funding sources and scenarios, it is by no means a comprehensive list.
ISTEA
When Congress passed the Intermodal Surface Transportation Efficiency Act (ISTEA) in 1991, most trail supporters could not even begin to understand how significant an impact this program would have on the trails movement. Before ISTEA, most federal trail development funds were administered through either the Department of Interior (Land and Water Conservation Fund, for example) or through the Department of Agriculture, which administers the Forest Service and associated programs. The passage of ISTEA changed that. For the first time in the history of federal transportation law, ISTEA made rail-trail acquisition and development, as well as almost all types of trails, pathways, greenways and other bicycle and pedestrian facilities, specifically eligible for federal highway funds.
Although ISTEA addresses far more than trails and rail-trails, several provisions of ISTEA are particularly relevant for trail builders. These include:
- Surface Transportation Program;
- Transportation Enhancements Program;
- Congestion, Mitigation and Air Quality Improvement Program (CMAQ);
- National Recreational Trails Fund Act (NRTFA); and
- Federal Lands Highway Program
While this is by no means a comprehensive list of possible trail funding sources within ISTEA, these programs and provisions tend to be the easiest to access for trail-related purposes.
Surface Transportation Program (STP)
The primary source of funds within ISTEA is the Surface Transportation Program (STP), which will provide state departments of transportation with about $23 billion in federal funds over the six year life of ISTEA (1992-1997). STP funds can be used for a wide range of road, highway and bridge construction and reconstruction projects, transit projects, and bicycle/pedestrian projects among other things. STP is a primary source for road building and maintenance funds, so the competition for "core" STP funds is extremely fierce. Very few trail projects have received "core" funds; only the most exceptional trail projects with extremely strong political support are likely to have even a chance at obtaining these funds.
Transportation Enhancements Program ("Enhancements")
The Transportation Enhancements Program is a special set-aside within the Surface Transportation Program. ISTEA requires that 10% of all STP funds, or roughly $3 billion dollars over six years, be set aside to fund non-traditional highway projects that enhance the existing transportation infrastructure. Each state has been apportioned a percentage of this $3 billion in accordance with a population-based formula.
The Enhancements Program funds the following ten activities:
- Bicycle and pedestrian facilities;
- Acquisition of scenic easements and scenic or historic sites;
- Scenic or historic highway programs;
- Landscaping and scenic beautification;
- Historic preservation;
- Rehabilitation and operation of historic transportation buildings, structures or facilities (including historic railroad facilities and canals);
- Preservation of abandoned railway corridors (including the conversion and use thereof for pedestrian and bicycle trails);
- Control and removal of outdoor advertising;
- Archaeological planning and research; and
- Mitigation of water pollution due to highway runoff.
Rail-trails are specifically eligible for funding under categories #1 and #7. In addition, rail-trails that are part of larger projects, or that incorporate elements of the other Enhancements categories, may be eligible for funding in other categories as well.
The Enhancements provisions are administered by each state's Department of Transportation (DOT). To receive Enhancements funds, you will need to submit a formal application to your state DOT. In most states, the project sponsor submitting an Enhancements application must be a local or state agency, although some states also allow nonprofit organizations to submit applications. Nonprofits are generally required to demonstrate some level of government sponsorship or endorsement before their applications are considered.
All Enhancements awards require that the project sponsor or the state provide at least 20% of the project's funding. The federal government provides the remaining 80%. This local match requirement is an extremely important issue that project sponsors need to address carefully, especially since matching rules and ratios vary from state-to-state.
Since requests for Enhancements funding exceed the funds available, Enhancements funds are awarded through a highly competitive selection process. In most states, the selection process begins when applications are submitted to the local Metropolitan Planning Organization (MPO) or other regional transportation planning body. MPOs play an active role in screening, endorsing, prioritizing, and, in some cases, actually selecting projects for funding. Once your application has been reviewed by your MPO, it will be passed along to the state DOT for statewide review. Many states have created statewide advisory committees to assist in evaluating projects. These advisory committees typically consist of citizens and representatives from the state DOT and other state agencies such as Department of Natural Resources and the Department of Tourism. To obtain more information about your state's selection process and selection criteria, contact your state's Enhancements Coordinator listed in Appendix F.
Congestion, Mitigation and Air Quality Improvement Program (CMAQ)
The CMAQ program funds transportation investments that help achieve the clean air goals set forth in the federal Clean Air Act. Under this program, which is authorized for $6 billion nationally over six years, states and Metropolitan Planning Organizations are required to use a variety of Transportation Control Measures (TCMs) to reduce air pollution. Bicycle and pedestrian facilities are two types of TCMs. If your project is in a metropolitan area that does not meet the national air quality standards for ozone and carbon monoxide levels (called a "non-attainment" area), you may be able to use CMAQ funds for your rail-trail. Trail projects in Portland, Chicago, and Washington, D.C. have been funded with CMAQ funds. In many urban areas, trail projects have very strong funding prospects through the CMAQ program.
National Recreational Trails Fund Act (NRTFA)
This program, also known as the Symms Act, was established to redirect sales tax revenue generated through the sale of fuel for off-highway vehicle use to support both motorized and non-motorized trail projects. While some rail-trail projects have received funding through this program, it is primarily intended to fund back-country trails and trail projects, as opposed to urban or suburban trails.
Although ISTEA authorized up to $30 million for this program, Congress appropriated only $7.5 million in 1993, and appropriated no funds in either 1994 or 1995. However, Congress voted in the fall of 1995 to appropriate $15 million for Fiscal Years 1996 and 1997. Since funding for this program is very limited, it is extremely important that you contact the State Trail Coordinator for information about your state's application and selection processes. See Appendix D for a list of State Trail Coordinators.
Federal Lands Highway Program
If your rail-trail project parallels or is adjacent to a road on federal land, including roads in National Parks, National Recreation Areas, National Forests, Bureau of Land Management lands, federal Parkways, or Native American reservations, you may be eligible for funds from the Federal Lands Highway Program. For example, in 1993, $2.8 million was spent on trailheads and bridge replacements along a Colorado trail, and a few other minor trail and recreation-related projects have also been funded through this program. Over the life of ISTEA, $2.6 billion in funding has been authorized for this program.
In addition to these ISTEA programs, there are a number of other federal funding sources for trail projects.
Community Development Block Grant Program (CDBG)
As rail-trails become increasingly important community development tools, rail-trail projects may be eligible for funding through the Community Development Block Grant (CDBG) program of the U.S. Department of Housing and Urban Development. The CDBG program is designed to support community improvement and redevelopment projects. Rail-trails with documentable economic, cultural and historic merit may be eligible for CDBG funding. Seattle's Burke-Gilman Trail and the Baltimore & Annapolis Trail in Maryland both received funds through this program.
To learn more about Community Development Block Grants, contact your mayor's office or your local planning or community development department. You might also contact the appropriate regional office of the Department of Housing and Urban Development. As with many federal programs, Congressional appropriations to this program have been on the decline for the past several years. Competition will be fierce.
State and Local Funding Sources
In addition to administering many federal programs, state and local agencies may also administer funds that can be used for trail acquisition. Your state's Department of Natural Resources (or its equivalent), or your local parks and recreation department are two obvious non-federal funding possibilities, but you should also explore other agencies such as transportation departments and community and economic development agencies.
State and local agencies may be able to fund rail-trail acquisitions using, one or more of the following methods:
- General appropriations;
- Special (project-specific) appropriations; and
- Set-aside programs (lotteries, bond issues, special taxes, etc.).
General Appropriations
If a state or local agency is the likely owner and/or manager of your rail-trail, the agency may have funds available in its general budget to assist with acquisition. If so, you need to ensure your project is as high on the funding priority list as possible. Demonstrating strong public support for your project is a key to convincing an agency to give your project funding priority. Make your case as convincingly as possible in order to persuade an agency to shift its limited resources to support your project. Realistically speaking, however, the vast majority of government agencies only budget for salaries and construction and maintenance activities, not for land acquisition.
Special Appropriations
In certain instances, it may be possible to win a special legislative appropriation to support your trail. While these appropriations are rare, once-in-a-lifetime opportunities, your trail may generate enough political support for a special appropriation. Obviously, convincing an elected official or legislative body to approve a special appropriation requires a great deal of political expertise and a long lead time.
Set-Aside Programs
As government agencies look to develop new funding mechanisms, earmarking certain revenues to support specific kinds of programs has become increasingly popular. These set-aside programs come in many forms: open space bond issues, user fees and taxes, vanity plates, sales tax increases, mineral and gas exploration fees, impact fees, and lottery revenues. If your state or community has developed any of these special set-aside programs, you should work with the appropriate agencies to have your project considered for funding. If no set-aside program currently exists, you may want to begin one, or get involved with ongoing efforts to create such a program, as your trail project may find itself in need of additional money in the future.
Penny for Pinellas: Financing the Pinellas Trail
During the late 1980s, Pinellas County officials began to consider ways to fund a long-term countywide Capital Improvement Program. After much discussion, the county leadership settled on a one-cent local-option sales tax as the preferred funding mechanism. By early 1989, the Capital Improvement Plan was in place, and the sales tax increase was ready to go onto the ballot. Even though the spending plan and the sales-tax increase were developed with considerable citizen input and the support of municipal governments, many thought fiscally conservative Pinellas County would never approve a sales tax increase. Recognizing the level of local support for the Pinellas Trail, the County Administrator amended the $1.1 billion funding package to add more than $5.25 million dollars in development funds for the Pinellas Trail in an effort to sweeten the deal.
With funding to complete the Pinellas Trail included in the Capital Improvement Campaign, Pinellas Trails, Inc. became a leading force in the "Penny for Pinellas" campaign. Pinellas Trails members spoke to community groups, appeared on radio and television, testified at public hearings, staffed phone banks, and distributed over 25,000 flyers urging support for the campaign.
Partly as a result of Pinellas Trails' efforts, the sales tax increase passed by a narrow margin of 398 votes out of 134,864 ballots cast. As then County Commission Chairman Bruce Tyndall said, "The critical difference was the formalized support of Pinellas Trails. You were the voice, not of government, but of the people, pushing for what you wanted." As a result of the victory, Pinellas Trails, Inc. was guaranteed long-term financial support to develop the 35-mile long Pinellas Trail.
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Non-Governmental Funding
With the general decline in public sector funding for many community development and recreation projects, the private sector is being asked to play an increasingly important role in financing community projects. One of the benefits of private sector financing is that these funds usually come with fewer restrictions and bureaucratic requirements than do public funds. The trick is locating and mobilizing private sector funders.
Generally speaking, a private sector fundraising campaign should target three types of potential funders:
- Individuals;
- Foundations; and
- Corporations.
There are advantages and disadvantages with each of these types of funders, so it is extremely important to develop a fundraising strategy before you begin asking for money.
The first lesson to remember in developing a private sector funding campaign is that potential contributors will need a wide variety of options to consider in deciding how to support a rail-trail project. Asking for too much or too little money is a sure way to complicate your fundraising. Make sure you know your targets.
Individuals
Individuals and families will almost certainly represent the backbone of any "friends of the trail" group. It is reasonable to ask members to pay a small membership fee to support the work of the "friends" group. In addition, you can develop a wide variety of special events bake sales, hike-a-thons, raffles, sales of rail-trail merchandise, and adopt-a-trail campaigns to raise additional funds for you efforts.
You should also make a special effort to locate wealthy philanthropists in your community. Share your vision with these individuals and offer them a way to make a substantial contribution for the betterment of their community. If you approach this fundraising professionally, you may very well receive sizable contributions to support your efforts.
Corporations
As community and economic development tools, rail-trails offer a wide range of benefits to the local business community. Whether it's a bike shop owner who is likely to experience a growth in bicycle sales or the CEO of a major company headquartered in your area, the business community should be included in your fundraising efforts. Not only should you create special corporate membership categories for the "friends" group, but you should also develop special fundraising programs that appeal to corporations. Consider developing a rail-trail wish list, an adopt-a-trail campaign, a special corporate gifts program, an in-kind giving program (particularly during the development phase), cause-related giving programs with bicycle or sporting goods stores, or a matching funds program to leverage corporate dollars.
Remember, businesses come in all shapes and sizes. It is important to research corporations to understand their philanthropic abilities as well as the extent to which your rail-trail could improve their business. Large corporations are likely to have corporate giving programs which could provide substantial funds for your trail. Don't limit your corporate giving program to "obvious" partners, however. Other rail-trails have benefited from such unlikely sources as a dish manufacturer and a contractor required to perform community service work.
Foundations
The foundation community may be a good source of funding during the rail-trail conversion process. Unlike individuals and corporations, however, many foundations have strict giving guidelines and sometimes burdensome application processes. For example, some foundations only support specific types of activities community organizing, for example, but not land acquisition projects. In addition, most foundation grants require long lead times between the application for funding and payment of the grant award. Consequently, foundations may be more suitable funding sources for organizational development activities than for immediate financing of land acquisition.
Other Types of Non-Governmental Funding
Line Buys
If you are acquiring a corridor through railbanking, you may be in a position to finance your acquisition through the purchase and subsequent resale of all railroad-related material in the corridor. This is called a "line buy". Line buys are very complicated transactions that require extensive understanding of the value of the entire corridor (not simply the real estate) as well as the costs associated with dismantling the corridor. Line buys work because you may be able to profitably manage the salvage of a corridor, while a railroad, because of its legal obligations, may be unable to do so.
Generally, state and federal regulations require an abandoning railroad to return a corridor to its original condition. If a corridor contains a significant number of improvements, especially bridges and tunnels, restoring the corridor's original condition can be an extremely expensive proposition. The railroad will likely have to pay a salvage operator to remove these improvements. On the other hand, a successful rail-trail may depend on keeping these bridges and tunnels intact. These two facts make the economics of a line-buy work.
If a significant number of structures need dismantling, or if any of these structures is of significant size, the railroad may find that the cost of dismantling these structures is roughly equal to the value of the tracks and ties within the corridor. You may be able to offer the railroad more for the entire corridor than a salvage operator would pay, since he would tend to bid lower to reflect the costs of dismantling these structures. If your bid is successful, you could sell the salvage rights to all track-related materials within the corridor tracks, ties, and ballast (first make sure you don't need the ballast as a trail surface or subsurface) to a salvage operator. Since you would not require the salvage operator to dismantle structures like bridges, he may be willing to purchase the salvage rights for more money than you have agreed to pay the railroad.
In some cases, trestles and bridges can be salvaged at a profit, but you can at least expect to break-even. The economics of a line-buy vary significantly, depending on the location of the corridor, the quality of the tracks and ties, and many other variables. Do not underestimate the complexity of a line buy. To succeed, you may need to ask Rails-to-Trails Conservancy for assistance.
The Cowboy Trail
RTC's Trail Conservancy began working in earnest to acquire the 321-mile Cowboy Line from the Chicago & North Western Transportation Company (C&NW) in the fall of 1993, when C&NW indicated it was going to abandon this corridor in the near future. Although C&NW had been unable to operate trains profitably on this corridor, Nebraska's governor, its legislature, and residents of communities along the Cowboy Line were afraid this abandonment would adversely affect the economy of northern Nebraska for years to come. When RTC suggested railbanking the corridor as a way to preserve the corridor for future rail use, while allowing C&NW to avoid continued losses on the line, both parties were interested.
Under the terms of an agreement that RTC brokered for the state of Nebraska, C&NW donated 73.5 miles of the Cowboy Line to NEBKOTA, a shortline railroad located on the western end of the line, while the remainder of the corridor was sold to RTC. RTC financed this acquisition through sale of the salvage rights to a commercial salvage company. Due to the significant number of bridges along the corridor, as well as C&NW's desire to eliminate its liabilities associated with the corridor as quickly as possible, RTC was able to negotiate financial terms that allowed RTC to donate the remainder of the corridor to the Nebraska Game and Parks Commission. RTC also provided several hundred thousand dollars in the form of construction work on the trail, as well as an endowment fund to help ensure the trail's long-term viability.
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Sale of Excess Property
In some instances, a trail group may learn that the railroad is willing to sell them more than just the corridor. For example, a railroad may own additional parcels of land adjacent to the corridor. A potential buyer might be able to sell this land to help finance the acquisition. In addition, the rails, ties, ballast and other improvements made to the corridor may be quite valuable. Although railroads almost always sell the rails, ties and ballast to a salvage operator for reuse or resale as scrap before turning the property over to a trail group, you may discover that some or all of these valuable materials may have been left in the corridor. If so, you may be able to sell these materials, depending on their quantity and quality, for as much as $10,000 a mile.
Identifying all possible funding sources is obviously a time-consuming process. Use this sampling as the basis for developing your funding plan, but don't forget to explore additional funding mechanisms. Creativity and hard work can leverage a great deal of funds. Make sure you bring both of these strengths to your fundraising campaign.
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